Home prices plummet near nine-year low due to foreclosure glut and short sales

The resale value of U.S. homes plunged in February, and prices hit their lowest level in nearly nine years, suggesting that a recovery in the housing market is still some distance away.

Despite some bright spots in other areas of the economy, the National Association of Realtors (NAR) announced today that sales fell 9.6 per cent last month – the largest decline since July.

Economists had expected February sales to fall by four per cent, and were clearly disappointed when the figure nosedived by more than double their estimates.

Foreclosed: A raft of reclaimed homes has pushed housing prices even lower

David Carter, chief investment officer at Lenox Advisors in New York, said: ‘This is a frustrating number. The U.S. residential real estate market doesn't seem to want to turn around despite better affordability.’

Financial markets have seemed to largely ignore the data. U.S. stocks were up sharply in early trade, partly on news of a bid by AT&T for Deutsche Telekom AG's T-Mobile USA, and growing hopes that Japan would get its nuclear crisis under control.

U.S. debt prices extended losses as the U.S. Treasury said it would begin selling off $142 billion in mortgage-backed securities it had acquired to help tame the financial crisis.

The NAR said the median home price dropped 5.2 per cent in February from a year earlier, the lowest since April 2002.

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It added that this was a sign of the relentless downward pressure on prices from a market flooded with foreclosure sales.

The group’s chief economist Lawrence Yun said: ‘If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market.

A glut of homes on the market and the flood of foreclosure properties are holding back a recovery in the housing sector, whose collapse helped to tip the U.S. economy into its worst recession since the 1930s.

Foreclosures and short sales, which typically occur below market value, accounted for 39 per cent of transactions in February, up from 37 per cent the prior month, the trade group said.

All-cash purchases made up a record 33 per cent of transactions in February.

Sales fell across the board, with multi-family dwellings declining ten per cent and single-family home units dropping 9.6 per cent. Compared with February last year, overall sales were down 2.8 per cent.

At February's sales pace, the supply of existing homes on the market rose to 8.6 months' worth from 7.5 in January. A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.